FORM 10Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended October 28, 1995
OR
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
For Quarter Ended: October 28, 1995
Commission File Number: 0-15907
Exact name of registrant as specified in its charter:
PROFFITT'S, INC.
State of Incorporation: Tennessee
I.R.S. Employer Identification Number: 62-0331040
Address of Principal Executive Offices (including zip code):
P.O. Box 9388, Alcoa, Tennessee 37701
Registrant's telephone number, including area code:
(615) 983-7000
Indicate by check mark whether Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes (X) No ( )
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $.10 Par Value -- 10,245,555 shares as of October
28, 1995
PROFFITT'S, INC.
Index
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets --
October 28, 1995, January 28, 1995, and
October 29, 1994 2
Condensed Consolidated Statements of Income --
Three and Nine Months Ended October 28, 1995
and October 29, 1994 3
Condensed Consolidated Statements of Cash Flows --
Nine Months Ended October 28, 1995 and October 29,
1994 4
Notes to Condensed Consolidated Financial
Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
PROFFITT'S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
OCTOBER 28, JANUARY 28, OCTOBER 29,
1995 1995 1994
(UNAUDITED) (AUDITED) (UNAUDITED)
----------- ---------- -----------
ASSETS
Current assets
Cash and cash equivalents $ 1,173 $ 1,133 $ 1,198
Net trade accounts receivable, less
receivables sold to third party 15,229 2,701 10,070
Merchandise inventories 242,061 162,080 226,436
Other current assets 17,011 13,646 20,026
--------- --------- ---------
Total current assets 275,474 179,560 257,730
Property and equipment, net 322,552 300,285 292,504
Goodwill 50,987 44,624 45,087
Other assets 15,199 15,586 14,754
--------- --------- ---------
$ 664,212 $ 540,055 $ 610,075
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable $ 91,603 $ 34,587 $ 98,976
Other accrued liabilities 32,462 26,565 28,397
Current portion of long-term debt
and capital lease obligations 16,528 15,269 16,545
--------- --------- ---------
Total current liabilities 140,593 76,421 143,918
Real estate and mortgage notes 69,410 64,726 66,685
Notes payable 91,242 49,376 65,091
Capital lease obligations 10,964 11,319 11,425
Deferred income taxes 56,755 54,830 51,976
Other long-term liabilities 3,167 2,438 1,458
Subordinated debentures 100,444 100,269 100,214
Shareholders' equity 191,637 180,676 169,308
--------- --------- ---------
$ 664,212 $ 540,055 $ 610,075
========= ========= =========
See notes to condensed consolidated financial statements.
PROFFITT'S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except per share amounts)
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------- ---------------------
OCTOBER OCTOBER OCTOBER OCTOBER
28, 1995 29, 1994 28, 1995 29, 1994
--------- --------- ---------- ---------
Net sales $ 173,484 $ 163,674 $ 482,594 $ 392,158
Costs and expenses:
Cost of sales 110,106 101,856 306,856 253,802
Selling, general, and
administrative expenses 44,137 43,657 124,369 99,738
Other operating expenses 12,543 12,546 36,074 30,949
--------- -------- ---------- --------
Operating income 6,698 5,615 15,295 7,669
Other income (expense):
Finance charge income, net of
allocation to purchaser of
accounts receivable 3,738 3,571 11,032 10,058
Interest expense (4,903) (4,434) (14,473) (11,353)
Other income (expense), net 233 212 575 777
---------- --------- --------- --------
Income before provision for
income taxes 5,766 4,964 12,429 7,151
Provision for income taxes 2,327 1,995 5,104 2,971
---------- --------- --------- --------
NET INCOME 3,439 2,969 7,325 4,180
Preferred stock dividends 487 488 1,462 1,206
---------- --------- --------- --------
Net income available to
common shareholders $ 2,952 $ 2,481 $ 5,863 $ 2,974
========= ========= ========= ========
Earnings per common share $ 0.28 $ 0.25 $ 0.57 $ 0.30
========= ========= ========= ========
Weighted average common shares 10,411 10,056 10,335 9,858
========= ========= ========= ========
Note/Earnings per common share amounts are based on the weighted
average number of shares of common stock and dilutive common stock
equivalents (employee stock options) outstanding during each period,
after recognition of preferred stock dividends.
See notes to condensed consolidated financial statements.
PROFFITT'S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
NINE MONTHS ENDED
-----------------------
OCTOBER 28, OCTOBER 29,
1995 1994
---------- ----------
OPERATING ACTIVITIES
Net income $ 7,325 $ 4,180
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 14,982 13,352
Changes in operating assets and liabilities, net (22,995) 61,589
--------- --------
Net cash (used in) provided by operating
activities (688) 79,121
INVESTING ACTIVITIES
Purchases of property and equipment, net (29,037) (11,575)
Acquisition of Parks-Belk Company (10,436)
Acquisition of Macco Investments, Inc. (199,140)
--------- --------
Net cash used in investing activities (39,473) (210,715)
FINANCING ACTIVITIES
Payments on long-term debt and capital lease
obligations (9,049) (33,764)
Proceeds from long-term borrowings 51,200 123,040
Proceeds from issuance of stock 29,204
Dividends paid to preferred shareholders (1,950) (888)
--------- --------
Net cash provided by financing activities 40,201 117,592
Increase (decrease) in cash and cash
equivalents 40 (14,002)
Cash and cash equivalents at beginning
of period 1,133 15,200
--------- --------
Cash and cash equivalents at end of period $ 1,173 $ 1,198
========= ========
Cash paid during the nine months ended October 28, 1995 for interest and income
taxes totaled $14,882 and $3,940, respectively.
Cash paid during the nine months ended October 29, 1994 for interest and income
taxes totaled $11,262 and $8,894, respectively.
In July 1994, the Company redeemed and converted 32,962 shares of Series B
Preferred Stock into 156,213 shares of Company Common Stock.
See notes to condensed consolidated financial statements.
Notes to Condensed Consolidated Financial Statements
(unaudited)
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of the
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three and nine
month periods ended October 28, 1995 are not necessarily
indicative of the results that may be expected for the year
ending February 3, 1996. For further information, refer to the
consolidated financial statements and footnotes thereto included
in the Company's Annual Report on Form 10-K for the year ended
January 28, 1995.
The balance sheet at January 28, 1995 has been derived from the
audited financial statements at that date.
NOTE B -- ACQUISITIONS
On March 31, 1994, Proffitt's, Inc. acquired all of the common
stock of Macco Investments, Inc., a privately held corporation
and the parent company of McRae's, Inc. The total acquisition
price of approximately $212 million consisted of a cash payment
of $176 million and the issuance of (i) 436,200 shares of
Proffitt's, Inc. Common Stock, (ii) the Company's 7.5% Junior
Subordinated Debentures due March 31, 2004 in an aggregate face
amount equal to $17.5 million, (iii) 32,962 shares of Series B
Cumulative Junior Perpetual Preferred Stock, (iv) the Company's
promissory notes to certain of the Macco shareholders for $2
million, and (v) transaction costs of approximately $6 million.
In addition and in connection with the acquisition, Proffitt's,
Inc. purchased four regional mall stores owned by McRae family
partnerships and leased to McRae's for $18.5 million.
McRae's was a privately-owned regional specialty department store
company, offering moderate to upper-moderate brand name and
private label fashion apparel, shoes, accessories, cosmetics, and
home furnishings. McRae's operates 28 department stores in
Mississippi, Alabama, Louisiana, and Florida. Proffitt's, Inc.
now operates two divisions: the Proffitt's Stores Division and
the McRae's Stores Division.
The excess of the cost of acquiring McRae's over the fair value
of the acquired tangible assets is presented in the financial
statements as Goodwill. Amortization of goodwill is provided on
a straight-line basis over forty years.
The following unaudited pro forma summary presents the
consolidated results of operations as if the acquisition had
occurred at the beginning of the period presented and do not
purport to be indicative of what would have occurred had the
acquisition been made as of this date or of results which may
occur in the future.
Nine Months Ended
October 29,
1994
(in thousands, except per share amounts)
Net sales $455,200
Net income $ 5,961
Earnings per common share $ .44
On March 7, 1995, the Company acquired a majority interest
(50.1%) of Parks-Belk Company, the owner and operator of four
department stores in northeast Tennessee. On April 12, 1995, the
Company completed the purchase of the remaining interest of
Parks-Belk. Specific terms of the transaction were not
disclosed, but consideration was paid in Proffitt's, Inc. Common
Stock and cash (aggregated less than $20 million). Goodwill has
been recorded on the Parks-Belk acquisition and is being
amortized on a straight-line basis over thirty years. On June 18,
1995, the Parks-Belk locations in Johnson City, Kingsport, and
Greeneville, Tennessee were converted into Proffitt's stores, and
the Parks-Belk store in Morristown, Tennessee was permanently
closed. These locations operated as Parks-Belk stores within the
Proffitt's Division until June 18, 1995.
On October 23, 1995, the Company announced its planned business
combination with Younkers, Inc., a Des Moines, Iowa based
department store chain operating 53 stores in seven Midwest
states. The transaction is expected to close by February 3,
1996, the Company's fiscal year end.
NOTE C -- INCOME TAXES
The difference between the actual income tax expense and the
amount expected by applying the statutory federal income tax rate
is due to the inclusion of state income taxes and to the
amortization of goodwill, which is not deductible for income tax
purposes.
The deferred income tax liability reflects the impact of
temporary differences between values recorded for assets and
liabilities for financial reporting purposes and values utilized
for measurement in accordance with tax laws. The major component
of the liability results from the allocation of the purchase
price to the assets and liabilities related to the McRae's
acquisition.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Liquidity and Capital Resources
Accounts receivable, inventory, accounts payable, and notes
payable balances fluctuate throughout the year due to the
seasonal nature of the retail industry. A portion of the
increases over year-end and prior year balances in these accounts
is attributable to the acquisition of Parks-Belk.
October 28, 1995 property and equipment balances increased over
January 28, 1995 and October 29, 1994 balances primarily due to
the acquisition and renovation of Parks-Belk stores, construction
of a relocated McRae's store, other store renovations, and
information system enhancements.
October 28, 1995 total indebtedness increased compared to year-
end balances primarily due to seasonal working capital needs
along with indebtedness incurred and assumed related to the
Parks-Belk acquisition.
October 28, 1995 shareholders' equity has increased over January
28, 1995 and October 29, 1994 primarily due to the issuance of
common stock in conjunction with the Parks-Belk transaction and
net earnings.
Results of Operations
The results of operations for the nine months ended October 29,
1994 include operations from the Proffitt's Division for the
entire period and results from the McRae's Division subsequent to
March 31, 1994. The results of operations for the nine months
ended October 28, 1995 include the combined operations from both
divisions for the entire period. The operations of the Parks-
Belk stores subsequent to its acquisition have been included in
the Company's results for the nine months ended October 28, 1995.
The Company currently operates its McRae's Division with 28
department stores and one home furnishings specialty store and
its Proffitt's Division with 26 department stores.
The following table shows, for the periods indicated, certain
items from the Company's Condensed Consolidated Statements of
Income expressed as percentages of net sales.
Three Months Ended Nine Months Ended
------------------ -----------------
10/28/95 10/29/94 10/28/95 10/29/94
-------- -------- -------- --------
Net sales 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of sales 63.5 62.2 63.5 64.7
Selling, gen., & admin. exp. 25.4 26.7 25.8 25.4
Other operating expenses 7.2 7.7 7.5 7.9
---- ---- ---- ----
Operating income 3.9 3.4 3.2 2.0
Other income (expense):
Finance charge income, net of
allocation to purchaser of
accounts receivable 2.1 2.2 2.3 2.5
Interest expense (2.8) (2.7) (3.0) (2.9)
Other income (expense), net 0.1 0.1 0.1 0.2
---- ---- ---- ----
Income before provision for
income taxes 3.3 3.0 2.6 1.8
Provision for income taxes 1.3 1.2 1.1 0.7
---- ---- ---- ----
NET INCOME 2.0% 1.8% 1.5% 1.1%
==== ==== ==== ====
Total net sales for the three months ended October 28, 1995
increased 6% to $173.5 million from $163.7 million in the prior
year. Comparable store sales also increased 6% for the quarter.
Revenues for the McRae's Division were $109.4 million, an
increase of 3% over last year on both a total and comparable
stores basis. The Proffitt's Division sales were $64.1 million
for the quarter, up 12% from last year. For the quarter,
comparable store sales increased 11% for the Proffitt's Division.
Total net sales for the nine months ended October 28, 1995
increased 23% to $482.6 million from $392.2 million recorded last
year. Comparable store sales increased 4% over the prior year.
Revenues for the McRae's Division totaled $303.8 million, up 2%
over last year on both a total and comparable stores basis.
Sales for the Proffitt's Division were $178.8 million, a 14%
increase over the prior year. On a comparable stores basis,
sales for the Proffitt's Division increased 9% for the nine
months.
Cost of sales as a percent of net sales increased 1.3% for the
three months and decreased 1.2% for the nine months ended October
28, 1995, respectively, as compared to the same prior year
period. The quarterly percentage increase was primarily due to
increased markdowns at the McRae's Division needed to assure
timely clearance of seasonal merchandise in view of weaker than
planned sales in this Division. In addition, the prior year
third quarter cost of sales percentage was lower than normal due
to higher than planned sales resulting in fewer markdowns. The
year-to-date percentage decrease in cost of sales was primarily
due to improved inventory control and lower merchandise
markdowns. Cost of sales as a percent of net sales for the nine
months ended October 29, 1994 was higher than normal due to
excessive inventory markdowns needed to clear aged merchandise at
the Proffitt's Division. These markdowns resulted from
overstocking new store locations in 1993 and weakness in women's
apparel sales in fall 1993.
Selling, general, and administrative expenses as a percent of net
sales decreased 1.3% for the three months and increased 0.4% for
the nine months ended October 28, 1995, respectively, from last
year. Total selling, general, and administrative expenses
increased 25% for the nine months ended October 28, 1995
over last year, to $124.4 million, primarily due to additional
overhead and other expenses required to operate the expanded
store base. The Company consolidated certain administrative
support areas for the Proffitt's and McRae's Divisions
(accounting, credit, and management information systems) during
the second quarter of 1995, and the Company began to realize
economies of scale during the third quarter. The Company
anticipates future leverage of selling, general, and
administrative expenses due to these consolidations, increased
sales volume, and expense control efforts.
Other operating expenses as a percentage of net sales decreased
0.5% and 0.4% for the three and nine month period over last year
primarily due to leverage generated from a larger sales base.
Net finance charge income, as a percent of net sales, was down
0.1% and 0.2% for the three and nine months ended October 28,
1995, respectively, from last year primarily due to the
allocation to the third party purchaser of accounts receivable of
finance charges. For the quarter, the allocation was $2.0
million, or 1.2% of net sales, compared to $1.6 million, or 1.0%
of net sales, last year. For the nine months, the allocation was
$6.3 million, or 1.3% of net sales, compared to $3.5 million, or
0.9% of net sales, last year. Gross finance charge income
(before allocation to third party), as a percent of net sales,
increased slightly for the three and nine month period over last
year.
Interest expense as a percent of net sales was relatively flat
for the three and nine months ended October 28, 1995 as compared
to the same prior year period. Total interest expense increased
27% for the nine months ended October 28, 1995 over last year, to
$14.5 million, primarily due to higher borrowings associated with
the McRae's and Parks-Belk acquisitions and higher interest
rates.
Net income for the three months ended October 28, 1995 totaled
$3.4 million, or $.28 per share, as compared to net earnings for
the three months ended October 29, 1994 of $3.0 million, or $.25
per share. The increase in earnings for the quarter primarily
was due to expense leverage. Net income for the nine months ended
October 28, 1995 was $7.3 million, or $.57 per share, as compared
to net earnings for the nine months ended October 29, 1994 of
$4.2 million, or $.30 per share. The increase in earnings for
the nine months primarily was due to enhanced gross margin
performance.
PROFFITT'S, INC.
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
11.1 Statement re: Computation of Earnings per
Common Share
27 Financial Data Schedule
(b) Form 8-K Reports -- A report on Form 8-K was filed
with the Commission on October 25, 1995 reporting
under Item 5 regarding the merger agreement
between Proffitt's, Inc. and Younkers, Inc. A
report on Form 8-K was filed with the Commission
on November 1, 1995 reporting under Item 5
regarding additional information on the proposed
merger of Proffitt's, Inc. and Younkers, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
PROFFITT'S, INC.
------------------------------------
Registrant
12-6-95
------------------------------------
Date
/s/ James E. Glasscock
------------------------------------
James E. Glasscock
Executive Vice President,
Chief Financial Officer,
and Treasurer
EXHIBIT 11.1
STATEMENT RE: COMPUTATION OF HISTORICAL EARNINGS PER COMMON SHARE
PROFFITT'S, INC. AND SUBSIDIARIES
(in thousands, except per share amounts)
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
OCTOBER OCTOBER OCTOBER OCTOBER
28, 1995 29, 1994 28, 1995 29, 1994
-------- -------- -------- --------
PRIMARY:
Average shares outstanding 10,241 9,940 10,176 9,726
Net effect of dilutive stock
options--based on the treasury
stock method using average
market price 170 116 159 132
------- ------ ------ ------
Total 10,411 10,056 10,335 9,858
======= ====== ====== ======
Net income $ 3,439 $2,969 $7,325 $4,180
Less preferred stock dividends (487) (488) (1,462) (1,206)
------- ------ ------ ------
Net income available to common
shareholders $ 2,952 $2,481 $5,863 $2,974
======= ====== ====== ======
Primary earnings per common share $ 0.28 $ 0.25 $ 0.57 $ 0.30
======= ====== ====== ======
FULLY DILUTED:
Average shares outstanding 10,241 9,940 10,176 9,726
Net effect of dilutive stock
options--based on the treasury
stock method using period-end
market price if higher than
average price 170 116 173 132
Assumed conversion of 4.75%
subordinated debenture 2,020 2,020 2,020 2,020
Assumed conversion of preferred
stock 1,422 1,422 1,422 1,163
------- ------ ------ ------
Total 13,853 13,498 13,791 13,041
======= ====== ====== ======
Income before interest adjustment $ 3,439 $2,969 $7,325 $4,180
Add 4.75% convertible subordinated
debenture interest, net of
federal income tax effect 625 625 1,875 1,875
------- ------ ------ ------
Adjusted net income $4,064 $3,594 $9,200 $6,055
======= ====== ====== ======
Fully diluted earnings per
common share $ 0.29 $ 0.27 $ 0.67 $ 0.46
====== ====== ====== ======
Note/For each period shown, the fully diluted earnings per common share
calculation is anti-dilutive, and therefore, no fully diluted presentation
is needed.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF OCTOBER 28, 1995 AND THE
CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED OCTOBER 28, 1995
(UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000812900
<NAME> PROFFITTS INC
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-03-1996
<PERIOD-END> OCT-28-1995
<CASH> 1,173
<SECURITIES> 0
<RECEIVABLES> 15,229
<ALLOWANCES> 0
<INVENTORY> 242,061
<CURRENT-ASSETS> 275,474
<PP&E> 322,552
<DEPRECIATION> 0
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<CURRENT-LIABILITIES> 140,593
<BONDS> 331,982
<COMMON> 0
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0
<OTHER-SE> 191,637
<TOTAL-LIABILITY-AND-EQUITY> 664,212
<SALES> 482,594
<TOTAL-REVENUES> 494,201
<CGS> 306,856
<TOTAL-COSTS> 306,856
<OTHER-EXPENSES> 36,074
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<INCOME-PRETAX> 12,429
<INCOME-TAX> 5,104
<INCOME-CONTINUING> 7,325
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<NET-INCOME> 7,325
<EPS-PRIMARY> 0.57
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